COVID-19: electronic signing of finance documents in Scotland

What finance documents can be electronically signed under Scots law? We take a look at the key considerations for lenders and borrowers.

22 June 2020

What finance documents can and cannot be electronically signed under Scots law? What should parties consider when electronically signing Scottish finance documents? We take a look at the key considerations for lenders and borrowers.

This note on Scottish finance documents should be read alongside our general guide on electronic signing of documents under Scots law, which is available here and covers the legal position on different types of electronic signature under Scots law, as well as the risks associated with electronic signing of Scottish documents. This note focuses on the most common way of electronically signing documents known as “simple” electronic signature, e.g. signing by pasting a copy of a signature into a document or by way of the basic functions on platforms such as DocuSign or Adobe.

Finance documents that should be signed in wet ink

While the general position under Scots law is that most finance documents can be signed electronically using a simple electronic signature, there are certain statutory and registration requirements that mean some Scottish finance documents need to be printed and signed in “wet ink”. Although advanced or qualified electronic signatures could be used for some of these documents, the availability of such signatures and registration requirements normally render them impracticable. We have outlined below some of the key categories of documents requiring wet-ink signatures. 

Documents relating to interests in land

The Requirements of Writing (Scotland) Act 1995 (the “1995 Act”) requires documents relating to interests in land to be in writing. As a result, almost all finance documents relating to land in Scotland will need to be printed in full and signed in wet ink. This includes standard securities (i.e. fixed charges) over property; dispositions (i.e. transfers) of property; discharges of standard securities, assignations of standard securities and ranking agreements that rank standard securities. All of these types of Scottish finance documents will need to be printed in full and signed in wet ink in accordance with usual Scottish execution rules.

Trustor/trustee trusts

The 1995 Act also requires trustor/trustee declarations of trust (i.e. trusts where the person declaring the trust and the trustee are the same person) to be in writing. These are commonly used on structured finance and asset-based lending transactions. Such trusts will need to be printed in full and signed in wet ink.

Guarantees not in the course of business

“Gratuitous unilateral obligations”, except those undertaken in the course of business, must be in writing and therefore signed in wet ink. In the context of finance transactions, this primarily refers to certain types of guarantees. What is meant by “undertaken in the course of business” is open to some interpretation and should be considered on a case-by-case basis, however it is likely that personal guarantees given by spouses or partners will not be considered to be undertaken in the course of business. Personal guarantees given by directors of companies may be likewise considered (although the position is more debatable with directors). As a result, those types of personal guarantees should be printed in full and signed in wet ink.

Corporate guarantees given by group companies, or cross-guarantees contained in commercial facility agreements, are more likely to be considered to be undertaken in the course of business and therefore not required to be signed in wet ink.

Other Scottish finance documents

Floating charges covering property in Scotland: although floating charges as a general rule are not subject to specific execution requirements under the 1995 Act, where those floating charges cover registered land in Scotland they could fall within the ambit of the requirement for documents relating to interests in land to be in writing. While the position is not beyond doubt, the safer view is to have such floating charges printed in full and signed in wet ink.

Assignations in security of certain intellectual property rights: the Copyright, Designs and Patents Act 1988 requires assignments of certain types of intellectual property (such as copyright, design rights and performing rights) to be in writing. As the only way to take fixed security over Scottish intangible rights such as these is for them to be assigned in security, an argument can be made (although, again, the position is not beyond doubt) that any Scottish assignation in security that relates to these rights should be printed in full and signed in wet-ink.

Stock transfer forms: Prior to the COVID-19 lockdown, stock transfer forms relating to shares in Scottish companies were required by HMRC to be in writing and signed in wet ink for the purposes of stamping. HMRC has, however, loosened this requirement and confirmed that it will accept electronically signed stock transfer forms for stamping. While stock transfer forms used to perfect a pledge of shares in a Scottish company do not ordinarily require stamping by HMRC, best practice has usually been to follow HMRC guidance on requirements for stock transfer forms generally. As a result, perfection of a Scots law share pledge through entry into of stock transfer forms can currently be carried out by electronic signature.

This is a developing area and it may be that, post-lockdown, HMRC will tighten its requirements again, therefore care should be taken to closely follow up-to-date advice from HMRC on this.

Other Scottish documents requiring registration at the Registers of Scotland

Where a party wants or is required to register a finance document at Registers of Scotland, the document will need to be printed in full and signed in wet ink. The most common types of finance document that this relates to (as covered above) are those relating to interests in land, which must be registered in either the Land Register of Scotland or, occasionally, the older General Register of Sasines. However, finance parties might wish to register other types of finance documents in other registers.

Mortgage conditions: where a lender has a standard set of mortgage conditions that are incorporated into (residential or commercial) mortgages, these conditions will almost always be registered at the Scottish Books of Council and Session. Where this is the case, the mortgage conditions will need to be printed in full and signed in wet ink by the lender.

Guarantees: although less common, a lender might wish to register a commercial guarantee with the Scottish Books of Council and Session to increase enforcement options by making the possibility of summary diligence (execution by consent) available. An electronically signed guarantee cannot be registered at the Books of Council and Session and would need to be signed in wet ink before being registered.

As at the date of this note it is not possible, due to lockdown restrictions, to register deeds in the Scottish Books of Council and Session. Parties will therefore need to await further guidance from Registers of Scotland on the reopening of the register and/or the creation of a digital registration service.

Finance documents that can be electronically signed

Subject to the categories outlined above, most other Scots law finance documents should be able to be signed by simple electronic signature. This would include, for example, loan agreements, amendment/restatement agreements, corporate guarantees, intercreditor agreements and security documents outside the categories outlined above.

However, each transaction should be considered on a case-by-case basis because, as outlined in our main guide here, there are circumstances where wet-ink transaction documents may be preferable (for example, to allow for signing and witnessing in order to obtain elevated “self-proving” evidential status under Scots law).

Additional registration considerations

Certain Scots law finance documents will require registration, either at Registers of Scotland or Companies House. Scots law does not recognise the English Mercury method of signing documents, and so there are additional considerations for parties to bear in mind.

Registers of Scotland 

As of 27 April 2020, Registers of Scotland operates a digital submission service (“DSS”) that enables PDF copies of wet-ink signed documents relating to Scottish land to be digitally submitted for registration through the Registers of Scotland online service. In the context of finance transactions this would include “documents relating to interests in land” as outlined above. As a reminder of why registration is so important, the interests created by these documents are only perfected once registered at Registers of Scotland. There is no intermediate or equitable interest in the land or property.

While the DSS operates by allowing PDF copies of the wet-ink signed documents to be uploaded to the online service, the submitting solicitor has to give certain certifications around the validity of the document being submitted. Most solicitors will require the wet-ink original to be in their possession before they can submit it for registration. Parties should therefore be aware that signing the wet-ink original may only the first step, with the original then usually being delivered to the submitting solicitors.

Companies House

Where Scottish security documents require registration at Companies House, solicitors will also need to ensure that what they are submitting is a certified true copy of the original document.

If the security documents are signed in wet ink, this will usually mean the solicitors holding the wet-ink originals or obtaining a certified copy from another firm of solicitors (which holds the originals). Solicitors may also be able to submit the security documents to Companies House where the party holding the original emails a scan of the wet-ink signed document and confirms that it is a true copy of the original. 

If the security documents are signed electronically, it can be trickier to confirm what is the “original” in order to submit a certified true copy of that original. Where the signatory emails the electronically signed document direct to the solicitor and confirms in their email that the document attached contains their electronic signature, this should be sufficient. Alternatively, where the security documents are signed and held on a signing platform (such as DocuSign) solicitors should be able to certify the document held on the platform (with it representing the “original” of the document). However, solicitors should consider in each case whether the proposed option allows them to certify a true copy for registration purposes.

Sector considerations

We have set out below some sector-specific considerations that borrowers and finance parties may wish to consider.

Real estate finance

In a typical real estate finance transaction involving Scots law assets, the core Scottish security document is likely to be the fixed security (standard security) over the property. As this is a document relating to an interest in land for the purposes of the 1995 Act (see above) it will need to be printed in full and signed in wet ink. Likewise, if the transaction involves a property purchase, the property transfer (disposition) will also need to be printed in full and signed in wet ink. If the property is subject to an existing standard security that is being discharged, the discharge will similarly need to be printed in full and signed in wet ink.

The position is less clear with other Scottish security that may be ancillary to or flow from the property, such as a floating charge that covers the property or a fixed security (assignation in security) over any rental income. In the circumstances, the safer option is for these security documents to be printed in full and signed in wet ink.

In short, parties to real estate finance transactions involving Scots law property should – in most cases – prepare themselves for printing and signing wet-ink documents.

Structured finance/securitisation/asset-based lending

Often these types of finance transactions will involve a party holding certain assets (whether mortgages, receivables or other similar rights) in trust for another party. Where this is the case, the rules in the 1995 Act around trustor/trustee trusts (see above) will apply and these documents will need to be printed in full and signed in wet ink.

Portfolio trading/loan book sales

Loan book sales involving loans secured against property (whether residential or commercial) in Scotland will invariably involve a bulk transfer (assignation) of the standard securities securing those loans and properties. These assignations are perfected by registration at Registers of Scotland and, as such, would need to be printed in full and signed in wet ink.

For more information, contact Neil Campbell, Senior Associate in the banking and finance team, at or on 0131 473 5416.